9.27.2009

Where the iPod took existing technology and improved upon the form factor and the marketing of portable digital music players, the Touch and iPhone have changed the landscape of the portable casual gaming market. Not all applications available for download in the Apple Application Store are videogames, By my calculation there are just under 8000 video game or video game related apps on iTunes. This level of competition for these “casual” games means that prices are driven not by the quality of the product, after all any game made by a large company can be made at a lower development cost at a small developer, but by the prices set by competitors for similar games.

This level of competition is limited in console and high end PC “hardcore” because of the high cost of development for those games, meaning that those games that have the highest budget (on average) bring in a higher return in investment. In the Apple App Store the opposite is true. The games with a smaller development team can sell their product for a lower price and still get more return from their investment than what a larger company with a larger budget could manage. The big advantages for larger companies are brand recognition and revenue for advertising. Despite these advantages there are some concerns with the business model the folks at Apple have already established as evident in this article by the New York times:

“The next breakthrough in gaming is not going to be in hardware,” Yoichi Wada, president of a top Japanese game maker, Square Enix, told Game Show participants. “It’s going to be in how to create a successful business model.”

“As a platform, the cellphone has the biggest potential, because everybody owns one,” said Kazumi Kitaue, chief executive at another game maker, Konami Digital Entertainment.

“We are going to move away from a market where it’s the hardware that fights against each other,” Mr. Hanamura [president of the Tokyo market research company, Enterbrain] said at a recent presentation. “We are going to be moving to an era when different software stores fight against each other.”

“The quality of cellphone games is varied, and you couldn’t play many of them for hours,” said Shuhei Yoshida, president of Sony’s games development arm.“Will a company be able to operate completely on these games? No,” Mr. Yoshida said. “After all, we’re talking about the kind of games people make sitting in a cafe with a laptop.”

The first concern expressed by these Japanese giants of gaming is quite simple but still rather “frightening” because it means that companies will have to completely change their business models in order to compete in the video game industry. The transition of hardware being the main selling point of video games, to software driving the market. We’ve already seen evidence of this shift by various companies; download services like Steam and Impulse, even companies that are tackling the biggest issues of performance versus software such as OnLive, GaiKai, and now Full Circle. All of these services are geared toward the digital distribution and how people pay for and play games, all on the PC.

Personal computers are the future of video game consoles. Let me explain; it is evident that multifunctional is becoming more important to consumers as evident by the success of smart phones such as the iPhone, it is also evident it is possible to take a low end PC or laptop and using software optimization or a broadband connection to stream from a different PC to achieve the same high end gaming that consoles deliver. So it will become possible, through software, to develop a unique hardware/software combination that delivers the function of PCs, the portability of smart phones, and the ability to play high end “hardcore” games all on the same system. Sony already has a decent candidate to fill that role in the Vaio P series. Something small enough to be carried around but large enough to act as a small laptop if necessary, and best of all it already has all the necessary software and hardware to run a service like OnLive, GaiKai, or Full Circle. Now all that’s missing is cell phone service and a docking station for an easy transition of using it as a multifunction device to playing video games on your high resolution monitor or HD TV. So in the end the solution will be, in my opinion, not purely software as the gaming industry is leaning towards.

There soon will be working software that can span the bridge of portable and high end gaming and with it will come this piece of hardware that is able to bridge all functions of a PC, netbook, smart phone, and video game console because of this software. One problem would still remain with software/hardware setup. The cost of making high end games, and the competition of making low end games. I cannot imagine the business model that would solve this. I imagine that Microsoft and Sony already have their own solutions to the cost vs. function problem but I’m also afraid that those solutions will be focused heavily on the old infrastructure of video game consoles and not all purpose devices. After all, why would they sell you a all purpose device when they can sell you a zune/walkman, high end PC, video game console, and cell phones that perform the same functionality that you want with the profits that they want? In the mean time Apple will continue to lightly hold the reins of their application producing giant while counting the money they’re making from the “casual” audience in the other.